The finding by the government-funded UK Energy Research Council endangers many of the government's assumptions on tackling climate change, because ministers' long-term plans rely heavily on making the untried technique work on a massive scale. CCS is designed to lower the carbon emissions of fossil fuel power stations.

The design of the new competition is flawed, and the UK is already falling far behind other countries such as the US in its attempts to commercialise the expensive technique, according to the lead author of the study, which took two years to compile. The technique has never been demonstrated at scale on a working power station.

Jim Watson, lead author of the report, said: "People assumed that CCS would be straightforward, but it has not been. It is a particularly challenging technology – it's actually very, very difficult."

The question of the future of CCS is a crucial one because all of the government's assumptions about how the UK can meet its long term target of cutting emissions by 80% by 2050 require a massive use of CCS technology. If it cannot be made to work commercially, and at a reasonable cost, then the UK would have to spend much more on renewable energy, nuclear power and other economic transformations, and would face having to make enormous cuts in areas such as emissions from air travel.

Watson said he would give the UK "a low grade" for its efforts so far on CCS, and pointed to potentially disastrous flaws in the way the government is attempting to revive commercial interest in the technology. These rest on the long-term support for the technology, which when added to fossil fuel power stations will make them far more expensive to run.

But the government wants companies to come up with proposals for building such plants within the coming weeks and months, while there is little chance of ministers outlining their long term funding ideas – which form part of the government's sweeping plans for electricity market reform – until next year at the earliest. This puts companies in a quandary, as they cannot put together adequate business plans without sight of ministers' long term funding proposals.

"The relaunch said all the right things about what to do, but there is a big question over the finance package," explained Watson. Offering to pay for some of the upfront costs of building such a plant – likely to cost well over £1bn – is not sufficient to attract companies, which will face the high costs of running such a plant for more than 20 years.

"When I talked to utilities, they were very sceptical – they need to make investment decisions, but all the pieces are not there," said Watson. "I've been very surprised also about how little detail there has been from the government on electricity market reform. If I were a developer, I would like more information."